Volunteers will test new retirement plan

By Tom Philpott

A Pentagon study recommends a complex four-part retirement plan be tested on a few thousand military volunteers to verify it would be a more equitable, flexible and efficient system than the prized 20-year benefit used by the military since the end of World War II.

Retired Air Force Brig. Gen. Jan “Denny” Eakle, director of the 10th Quadrennial Review of Military Compensation, is confident the plan she and a small staff designed “will answer the needs of individual service members as well as provide flexibility to the services and best value to the taxpayer.”

Completing a 30-month study of pays and benefits, the 10th QRMC also endorsed higher TRICARE enrollment fees for retirees under age 65 and their families, and higher co-pays in TRICARE’s retail pharmacy network.

Other recommendations in Volume II of the QRMC report focus on improving recruiting and retention of military doctors and nurses and new quality-of-life initiatives to help service families, particularly by expanding options for childcare and off-base child education.

The report is online at:

www.defenselink.mil/news/QRMCreport.pdf

Last March, the QRMC released Volume I of its report, on reforming cash compensation. It recommended a new method of comparing military pay with pay of civilian peers, and an increase in housing allowances for members without dependents. Most QRMC proposals will remain “under study” by Defense officials until a new administration takes office in 2009.

Eakle worked with the RAND Corp. to build a computer program that would measure how members react to various retirement features or deferred compensation options. Her goal was to build a plan that would give the services more options to shape their forces, would allow more members to gain some retirement benefits and would lower overall personnel costs.

The “flexible” retirement plan Eakle presents would apply both to active and reserve component members. All members would come under two of its features — a defined annuity plan and a government-funded Thrift Savings Plan account —with vesting after only 10 years’ service.

The annuity uses a familiar formula: 2.5 percent of average annual basic pay for the member’s highest three earning years multiplied by years served. But payments wouldn’t begin until age 60 for members with 10 to 19 years served, or age 57 for those who served 20. Members with 20 or more years could get an immediate annuity, as the current system allows, only at great cost, losing 5 percent for every year they are under age 57.

The TSP account would require no matching contribution by the member. Government contributions would start in year two of service with an amount set at 2 percent of basic pay. That would be followed by 3 percent in the third and fourth years, 4 percent in the fifth, and 5 percent each year after. Though members would be vested in the TSP account after 10 years they couldn’t make withdrawals until age 60.

The plan’s final features are gate pays, to draw members to specific year-of-service milestones, and separation pay. The timing, size and availability of these would be left to each service and could vary by job skill and years of service.

Tom Philpott can be contacted at Military Update, P.O. Box 231111, Centreville, Va. 20120-1111, or by e-mail at:
milupdate@aol.com